'Forward-Looking Deal': Market Veteran On Coforge's $2.35 Billion Encora Acquisition

Coforge's acquisition of US-based artificial intelligence company Encora is a very 'forward-looking deal' and bodes well for the IT services company's deal pipeline and customer engagement, according to Trip Chowdhry, Managing Director (MD) - Equity Research, Global Equities.

In an exclusive interaction with NDTV Profit on Monday, Dec. 29, Chowdhry said that most global fortune 2,000 companies are pivoting to AI. "With this acquisition, the customer is putting a bet and engaging with those IT services companies who have a very slid roadmap of providing AI services."

On Friday, Coforge announced that it will acquire Encora for an enterprise value of $2.35 billion or around Rs 21,138 crore. The purchase will be financed by share swap and an equity sale to institutional investors.

According to Chowdhry, the landmark acquisition could bring some hiccups for Coforge's earnings in the near-term. "In today's environment, one has to deliver and show the benefits of AI. But, if you take the whole situation together, the company's platform AIVA bodes very well.''

The market expert said that the AI industry is moving at a very speed and the customer isn't able to catch and figure out what makes sense for them. On the deal, Chowdhry said that the technology isolates customers from the high velocity of innovations that's happening in AI and Encora can selectively put the innovative technology when it feels the customer is ready, into the platform. ''So it is a very sound value proposition,'' he said.

"The deal is important for Coforge so that it can tell its customers about the result's efficiency and what it has delivered internally to its customers. The trajectory of this acquisition will be phenomenal and hence, it is a very forward thinking acquisition," explained Chowdhry of Global Equities.

The expert believes that six months from now, any company trying to sell digital services will go down as ''digital is yesterday's story''. "Today, the customer is looking to have AI implementation which has some credibility. If this acquisition was not there, Coforge would not be in any conversation with the customer in 2026. So, it is also very timely," he concluded.

An equity value of $1.89 billion will be paid in the form of equity shares through preferential allotment worth Rs 17,032 crore by Coforge. The preferential shares will issued at Rs 1,815 apiece, which is at a premium of 8.5% of the previous close. This will result in shareholders of Encora holding approximately 20% of equity in Coforge, as per the exchange filing.

A bridge loan or Qualified Institutional Placement of upto $550 million or Rs 5,000 crore will be floated to retire a term loan in Encora. The AI-led engineering, data and cloud services alone are likely to deliver $2 billion revenue in FY27, as per company estimates. Coforge's North America business is expected to jump by 50% to $1.4 billion post-acquisition.